RBJ 75: Revitalized Genesee Brewing is barreling along

By THOMAS ADAMS - 7/27/2012

By THOMAS ADAMS

The Genesee Brewing Co., cash-strapped and its long-term future in doubt three years ago, has more than doubled its production and employment since being acquired by New York City private equity firm KPS Capital Partners L.P.

The erstwhile High Falls Brewing Co. LLC employed 330 people when KPS purchased the company in February 2009. The workforce has grown to 715, including 180 hired in the last 12 months.

"In 2009, we ran as few as three lines and usually, at peak, five or six lines," said Kenneth Yartz, chief operating officer of holding company North American Breweries Inc. "I'm running the equivalent of 10 manufacturing lines today."

The primary driver of the expansion is the Seagram's Escapes wine coolers, made at the Rochester brewery since June 2007. A 10-ounce pouch container for the product was launched in April after the start of production in February.

"The Seagram's line runs 24 hours a day, five days a week," Yartz said. "We don't shut it off. It hasn't run anything but Seagram's Escapes since May 14."

Weekends are reserved for preventive maintenance of the machines and cleaning, he said.

KPS acquired the perpetual license to produce the Seagram Co. Ltd.'s wine coolers and malt beverages from Pernod Ricard USA LLC as part of the 2009 deal.

The private equity firm created North American Breweries as the holding company for Genesee Brewing and for Buffalo-based U.S. operations of Labatt Brewing Co. Ltd., whose beer is brewed in Canada.

NAB is the sixth-largest brewing company in the United States, based on 2011 volume, the Brewers Association trade organization reports.

Nearly 7 million cases of Seagram's Escapes will be produced in 2012, up from less than 3 million cases in 2009, Yartz said.

"It's turned into a giant brand, all of which is coming out of Rochester, all of which is essentially being produced on one line," he said. "We have one line that runs around the clock, 24 hours a day, five days a week."

Of the 180 recent hires, at least 110 were for the Seagram's line, company officials said.

NAB changed the shape of the Escapes bottled drinks to a sleeker, slimmer style in 2009, and replaced the paper label with a pressure-sensitive adhesive, Yartz said.

The concept of a frozen pouch was formulated last September, said CEO Richard Lozyniak.

"We did a little bit of research and went to KPS in January and said we want to drop a half-million bucks," Lozyniak said. "In February, we had the machine starting up."

KPS approved the request, and brewery officials asked the private equity firm for another $500,000 for an additional machine to keep pace with demand, Lozyniak said.

"We went from a concept to a production line that has 100 people working on it today, and that happened in a several-month period," he said. "You go to a major corporation, that doesn't happen. That's a three-year study."

Seagram's Escapes pouches come in four single-serving flavors: strawberry daiquiri, pina colada, margarita and sangria. All are made to be frozen before drinking.

"In a four-month period, we essentially developed the flavors and developed the method of packaging," Yartz said. "We took a tepid approach to developing this concept. The demand has been far greater than what the initial investment allowed for."

The liquid was developed by Genesee Brewing employees, who determined how to make, package and freeze it, said Yartz, who came to the brewery in 2008, a year before KPS bought it.

"This is such a great group of people here, with the work ethic and the initiative to do anything," he said. "If we need to figure out a new process or solve a technical problem, these are good folks here. They do a great job."

The brewery plans to produce 145,000 cases this month, Yartz said. It originally planned on 150,000 cases for all of 2012, he said.

"The growth continues," Lozyniak said. "Seagram's is a growing brand. Actually, every brand we have here is growing. And we've done it in a very measured way. It's just that certain brands, like Seagram's, have exploded."

The brewery produces its benchmark line of Genesee beers and its Dundee Ales and Lagers craft beers in addition to wine coolers. It also does contract brewing for undisclosed companies.

"They've done a good job," said Eric Shepard, executive editor of Beer Marketer's Insights Inc., a downstate trade information service. "They're growing volume-wise. They have most of the brand trends in pretty good shape.

"I think Labatt has been a little bit softer than they would like, but overall they've built the volume. The contract business is doing pretty well. There's not much to not like."

Shepard wonders, however, whether the growth of the portfolio is sustainable.

"They look at it as very balanced because they have everything," he said. "They have imports. They have specialty. They have mainstream. And they have the Seagram's brands.

"But they're also kind of small to have that broad a portfolio to compete nationally. But so far, except for the Labatt brand, they've been quite successful."

KPS also has yet to add another beer maker to the NAB portfolio after listing that as a goal following the 2009 deal with High Falls Brewing.

"They've talked about that and things have come up, but usually the price is higher than what people want to spend," Shepard said. "That may be what has happened. I think people are kind of waiting for that shoe to drop."

Yartz and Lozyniak both think the brewery will continue to grow.

"I suppose at this point in time nothing really surprises me," Yartz said. "I don't think there's anything that we can't do.

"I don't control sales, but when I look at volume, is it reasonable to think that Genesee could double in another three years? I'd say yes. Is it reasonable that Escapes, which is a national brand, could double that six or seven million cases in three years? I believe it could. I think the sky's the limit."

KPS has spent $30 million on improvements at the brewery since taking ownership, including $10 million in 2012, Lozyniak said. In addition, $2.6 million is being spent now to create a two-story museum and brew house on Cataract Street.

"Kenn has doubled the output at the brewery in the last two years," he said. "I don't think we'll double it again, because at that point we'll start running out of capacity.

"The nice thing for us is we've done a huge modernization here of over $30 million. If we need to grow now, it's just a function of hiring people. We have the number of lines and the physical assets we need. It's just throwing on another shift."

If volume is doubled again, it could mean the addition of 100 to 200 employees, Yartz said.

Most of the recently added jobs and most of the potential openings would be general labor, with starting pay of $12 an hour, Yartz said.

"We do hire specialists," he said. "We'll hire mechanics or electricians or engineers. But the vast majority of the folks we bring in are folks with a good work ethic and with a good attitude and aptitude to do just about anything."